New EU Directive: Stricter rules for violations of foreign trade law

On January 28, 2025 (case no. 3 StR 373/21), the German Federal Court of Justice (BGH) published a judgment from November 2024. The decision addressed the criminal liability for importing teak from Myanmar (Burma) in violation of the Myanmar Embargo Regulation. According to the BGH, the embargo only applies under certain conditions.

BGH decision shows: Precise knowledge and interpretation of embargo regulations are indispensable

The BGH was able to base this assessment on a ruling by the European Court of Justice (ECJ) from September 2024 (C-67/23). According to the ECJ, the import of teak is only subject to the embargo if it is imported directly from Myanmar. The embargo does not apply to teak that has been processed in third countries (e.g., into sawn timber in Taiwan) – in which case the import is not punishable.

The BGH therefore acquitted the defendants insofar as they had been convicted of importing sawn timber. In addition, it set aside the sentences and confiscation orders of the Regional Court and referred the case back to the Hamburg Regional Court for a new hearing and decision on the sentences and confiscation.

This decision once again highlighted the importance of precise knowledge and interpretation of embargo regulations in international trade. Ultimately, it also concerns the criminal nature of any violations of foreign trade law. The precise understanding and application of embargo regulations will become all the more important in future, as EU-based and German companies are likely to face higher penalties for embargo violations.

New EU Directive to harmonize handling of embargo violations within the Union

This is due to an EU directive that aims to harmonize the handling of embargo violations within the EU. Directive 2024/1226 must be transposed into German law by May 2025. We present the draft law and possible difficulties in practical implementation below:

Extensions of constituent elements of criminal offenses

In future, a large number of violations of foreign trade law will no longer be prosecuted as an administrative offense, but as a criminal offense. This applies, for example, to securities trading with Russia. Sectoral transaction bans that are not clearly covered by an import, export or service ban will also be punishable. This includes bans on renting and leasing, but also violations of embargo-related procurement regulations or violations of the general information disclosure obligation (“Jedermannspflicht”). The latter is a duty to provide information.

Focus on acts of circumvention, sometimes doubling the range of punishments

Many violations that colloquially (but not legally) constitute a circumvention of sanctions are already classified as criminally relevant acts of participation in embargo violations or as violations of indirect prohibitions. The new draft law further describes which circumventions under embargo law are punishable as well.

In 2010, the Federal Court of Justice ruled (case no. AK 2/10) that violations of the circumvention ban could not be sanctioned under criminal law; in this respect, the old provisions were too vague. The legislator apparently intends to prevent this accusation with further specifications. Among other things, this concerns acts of concealment.

In future, sanction violations committed through the use of subsidiaries in third countries or for which incorrect or incomplete information was provided to the authorities will generally be treated as particularly serious criminal offenses. Such acts are to be punished even more severely than before. The range of punishments will be doubled to between six months and ten years.

Criminal liability for reckless infringements in trade with dual-use goods

In addition, even reckless violations of embargo regulations for trade in goods that can be used for civilian and military purposes (so-called dual-use goods) will be prosecuted. Recklessness refers to particularly serious breaches of due diligence, i.e., highly negligent behavior. The term is already commonly used in the law regarding economic offenses.

Reckless conduct is already specifically described in Art. 17 (5) AWG. However, the classification often causes difficulties in practice: There is a very fine line between slight and particular negligence, and it is often disputed whether a party’s conduct is still “slightly negligent” and therefore not subject to any sanctions, or whether the line to “particular negligence” has already been crossed. This can only be assessed on a case-by-case basis. In practice, there is great potential for defense in this respect.

Increase in the range of fines to up to 40 million euros

If a company violates sanctions, this not only leads to investigations against the company owners, but usually also to fine proceedings against the company. In order to create a minimum standard for the maximum level of fines imposed on companies in the future, the range of fines for certain intentional offenses is to be increased from ten to forty million euros.

However, the halving of the fine for negligent breaches of supervisory duties will continue to apply in future. The defense will therefore also have to pay attention to the distinction between intentional and negligent actions.

Paradigm shift in foreign trade law – compliance more important than ever

The latest sanctions packages of the Russia and Belarus embargo regulations already show that companies are expected to take increased due diligence measures in foreign trade. In this respect, a paradigm shift in the legal field is discernible. A company will probably also have to be measured against the fulfillment of these obligations in the context of possible investigation proceedings, even if violations of such due diligence obligations are not (yet) punishable by law. In light of the stricter penalties, companies are nevertheless well advised to adapt their compliance management systems.

We will be happy to advise you on all matters relating to foreign trade, customs and excise tax law and support you in implementing new or adapting existing compliance systems.

If you need support in criminal or fine proceedings, our experts in the law regarding fiscal and economic offenses will work with you to develop the optimal defense strategy.

Feel free to contact our experts.